Wednesday, 2 October 2013

Whether large amounts of debt is bad in itself depends on what it's used to purchase. A new car, fair enough, why not? However, if it's on wholly unproductive assets like location, it's just money down the LMBH.

UK personal debt now stands at £1.42trn. Of this mortgages count for £1.26trn.

Of this, let’s say 2/3 is land value, giving us a figure of 840bn.

Given historical trends in UK property prices, we can expect this to go up by 100% in around 25 years time.

So in today’s money £1.68trn. With the value of improvements added, £2.1trn

If LVT were introduced tomorrow, and site values fell to zero, all outstanding debt on land values would be retired in 25 years time (given that’s the length of the average mortgage)*.

This would mean, all else being equal, the level of UK personal debt (mortgage plus unsecured) would be £580bn instead of £2.26trn.

About a quarter in other words, and not to be sniffed at.

*Naturally, under LVT, people would have more disposable incomes. So in all likelihood, a mortgage could be paid off in 10 years rather than 25. So the bulk of the projected savings would moved forward substantially in time.